Legal news and trends for Canadian in-house counsel and c-suite executives
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Drafting Mistakes Incorporating Arbitral Rules First – Failing to identify rules accu- rately or completely. Example: "Any dispute . . . between the Parties arising out of or relating to this Agreement which cannot be set- tled amicably shall be referred to and determined by arbitration in the Hague under the International Arbitration rules." — Marks 3-Zet-Ernst Marks GMBH & Co. KG v. Presstek, Inc. (US App. 2006) Second – Incorporating more than one set of rules. Example: "In the event that CPR shall no longer exist or if CPR fails or refuses to accept submission of such Dispute, then the Dispute shall be resolved by binding arbitration before JAMS under the AAA's Commercial Arbitration Rules then in effect." — Proposal from Reliant Energy, Inc. to Houston Texans (July 2001) Third – Attempting to make admin- istered rules non-administered by incorporating rules but rejecting that institution administering them. Example: "It is understood and agreed that the references in this Paragraph to the rules of the ICC shall signify only the Parties' agreement to utilize such rules where appropriate, and not the Parties' agreement to utilize the full service of the ICC." — Guaranty proposed by Pemex Gas y Petroquímica Básica (October 2006) Fourth – Referencing set of arbitral rules but not agreeing to their use. Example: "In addition, the Parties may agree on such other rules as they deem necessary, but in the event a subject is not covered in this Paragraph and if the Parties agree thereon the Rules of Arbitration of the International Chamber of Commerce (ICC) of Paris, France shall apply to the extent not inconsistent with provisions of this Paragraph." — Guaranty proposed by Pemex Gas y Petroquímica Básica (October 2006) leery of the ICC, Richler says, espe- cially given the European approach that de-emphasizes processes like doc- ument production and discovery. As a result, U.S. companies will often prefer the more familiar procedures of the ICDR. At the same time, the major insti- tutions do have what many consider a downside — the cost. "The ICC has a bad rap because it's expensive," says Richler. However, he says, the Paris agency can nevertheless make up for what appear to be high costs by encouraging greater efficiency since the arbitrators receive a lump-sum fee based on the scale of the dispute, rather than an hourly rate. "It means you need to either be more careful in your drafting or you simply adopt the institutional rules." The risk sometimes is that by going outside of an institution, the courts may deem an arbitration clause to be patho- logical and therefore not enforceable. Barry Leon, a Torys LLP arbitration practitioner, says a common mistake is in clauses saying the process will adopt the rules of a particular institution such as the ICC but not provide for — or perhaps reject allowing — that body to run it. "It doesn't work because the rules contemplate the ICC, doing things," says Leon. Like Richler, Leon believes the most effective arbitration clauses avoid get- We will never allow the ownership of intellectual property to be determined by an arbitration. . . . It's the core of our business. We cannot afford to have someone get it wrong. Barry Fisher, SAP Canada Inc. At SAP Canada, Fisher says while the company has used the major arbi- tration institutions, it has tended to prefer an ad hoc process in which the parties determine the procedures themselves. In international situa- tions, it will then always default to standard arbitration rules set out by the International Bar Association. The potential pitfall, of course, is without an official body to run the process, the parties risk doing what they set out to avoid in the first place. "If you don't have prescribed rules and you're in a fight, you tend to find more things to fight about," says Fisher, adding his experience has been competent counsel will usually find ways to get around such wrangling. 18 • AUGUST 2009 INHOUSE ting bogged down in too many details. Instead, he argues at their simplest, clauses need only specify the place where the arbitration will happen, the language it will take place in, and the number of arbitrators to hear it. "That's all you really need to have an arbitration," he says. At SAP Canada, Fisher says arbitra- tion clauses will also typically include some language about the qualifications the adjudicator should have, some- thing he argues is particularly impor- tant for a software company. "The lesson that we've learned out of this is to be quite particular in the arbitration clause both to the qualifications of the arbitrator and the rules of engage- ment," he says. Fisher adds he usually